Three ways China wins under U.S. President Trump

January 20, 2017 | Kim Iskyan

U.S. President-elect Donald Trump has made it clear that he’s no friend of Asia. But ironically, in some ways President Trump could be a big boost for China.

We’ve written about how Asia has a lot to lose under President Trump (click here to see our free special report on the topic). Most of Asia’s economies are heavily reliant on foreign trade. A trade war with China and a steep tariff on Chinese imports – as promised by Trump – could seriously damage what’s been the foundation of a generation of growth for much of Asia. Also, an American retreat from Asia could disrupt the fine geopolitical balance between – for starters – China and Taiwan, and North Korea and South Korea.

But China – which has been a victim of President-elect Trump’s verbal wrath and Twitter temper – may actually benefit in three ways.

1. China becomes the grown-up in the room

To varying degrees, for much of the twentieth century, the U.S. has often been a voice of reason on the international stage. Although it has – of course – always advanced its own interests first and foremost, it’s also often used its dominant geopolitical and military position to advance ends that are, broadly speaking, legitimised by the international community.

But indications so far suggest that under Donald Trump – who makes a sport of picking fights with anyone who upsets him, from air conditioning companies to civil rights icons to former beauty queens – the U.S. won’t assume that responsibility.

Trump’s comments have received criticism around the world. This year’s annual World Economic Forum (WEF) meeting in Davos was a perfect example of how China is filling the void left my Trump to take on a “grown-up” role in the theatre of global politics.

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At the forum, in response to Trump’s inflammatory threats to abandon the Paris accord on climate change, President Xi Jinping defended the agreement. He called it “a hard-won agreement” that “all signatories should stick to”.

What does this mean? If the U.S. relinquishes its moral authority as the voice of reason, China is a prime candidate to take it over. China has the size and strength. And if it continues to sound reasonable (see below), it will also have the credibility.

2. China benefits more from globalisation

Donald Trump’s campaign slogan, “Make America great again,” has a strong undercurrent of “Fortress America” that looks likely to play out during Trump’s presidency. Trump has promised a sharp shift away from globalisation – via a wall with Mexico, making it more difficult for Muslims to enter the U.S., starting a trade war with China, and many other measures.

This leaves the door open for China to become both the champion, and key beneficiary, of globalisation.

Earlier this week during the WEF, Chinese President Xi Jinping offered a “vigorous defense of free trade… in a speech that underscored Beijing’s desire to play a greater global role as the United States turns inward,” according to Reuters. Late last year he promised that “China will not shut the door to the outside world but will open it even wider.”

This is the first year that a Chinese head of state attended the WEF in Davos, an exclusive conference for elite political and business leaders of the world. Jinping used the platform to draw a contrast between himself and – what seems to be – the crumbling liberal economic order. He presented himself as a leading international statesman and a champion of globalisation.

One of the most important benefits of globalisation is free trade, and China has made it clear that it will be happy to replace the U.S. in any potential trade deals – most notably in the wake of the dissolution of the Trans-Pacific Partnership (TPP) at the hands of the United States. At least two other trade deals, the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia-Pacific (FTAAP), are in a position to help bind Asia more tightly together – only with China, not the U.S., as the glue.

3. America’s retreat will allow for China’s strategic dominance

In Asia – and elsewhere – the inward shift of Trump’s America will have implications beyond trade. It also means that China’s efforts to deepen its political and economic influence throughout the world will be made all the easier.

For example, China has long been a major investor in Africa. Through its “One Belt, One Road” efforts to create a modern-day Silk Road via investment in a massive infrastructure and transportation network from Beijing to Rotterdam, China is becoming a major investor – with strings attached – through Asia and beyond. And Beijing’s answer to the World Bank and the International Monetary Fund, the Asian Infrastructure Investment Bank, will address a funding and investment needs that will grow larger with less American involvement.

We’ve written before about the slow but inexorable shift of the global political and economic centre, from west to east. If China “wins” during the Trump presidency in these three – and many other – ways, this shift will only accelerate.

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Kim Iskyan

About Kim Iskyan

Kim Iskyan has nearly 25 years of experience as a stock analyst, hedge fund manager, political risk consultant, and financial commentator in more than half a dozen emerging and frontier markets.

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